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Affordable Housing Study Session

The City Council had a study session last week devoted to affordable housing. The session covered how San Jose could build more affordable housing, even though it has already publicly funded and completed roughly 21,000 such units in years past and has 1,500 additional units currently in the pipeline. As a point of comparison, other cities have done little during the same time period.

Comments from the council included advocacy for the building of more traditional single family homes, potentially in the Almaden Reserve and Coyote Valley, with the objective of bringing down the average cost of such dwellings. The economist who was invited to speak at the meeting said any newly constructed houses in the urban reserve may indeed sell, but following this path would be contrary to the changing, age-based demographics of San Jose (more seniors, more young people). In addition, statistics indicate that committed couples are having fewer or no children today compared to past decades, which highlights a demographic shift that alters demand for single family homes.

Most economists and urban planners agree that suburban sprawl is bad for city revenue and the environment. The majority of homes in San Jose are single family dwellings, and the resultant suburban sprawl has contributed to the city’s economic problems and transportation woes. Building out houses across the valley in Almaden and Coyote would only magnify the pain.

It was mentioned during the study session that 4,500 units of market rate apartments are under construction in North San Jose. Had the council approved the construction of single family houses instead of high density apartments, the result would have netted roughly 300 houses or 4,200 fewer housing units overall.

I asked the economist, point blank, which of the two options he would choose: 4,500 apartments or 300 houses. Not surprisingly, he chose the 4,500 apartments. The 4,500 units in North San Jose would create more overall affordability by providing additional housing (supply and demand). Three hundred single family homes is a drop in the bucket when considering the over 175,000 similar units that already exist. In contrast, the creation of 4,500 market rate apartments would add significantly more construction jobs, aggregated property and utility tax revenue, and larger park and road paving remittances than the 300 single family homes.

Additionally, the development of density in North San Jose does not create conflict with traditional single family neighborhoods and enables more of an active urban community that both young professionals and seniors alike seek out. This is significant, because young professionals and seniors are the two fastest-growing demographic groups in San Jose. And not coincidentally, they are also less inclined to choose a single family home and all of the inherent maintenance responsibilities that come with it.

The Housing Department will return to council in February 2013 with further information to consider. One option is to look at borrowing money by issuing bonds that would provide funding for more affordable housing construction. This is the same method utilized to purchase golf courses and the Hayes Mansion. San Jose is already in debt for over $800 million for past bond issuances, and this figure does not include the $1 billion plus attributable to airport bonds.

Yet another option would be to make market rate housing developers pay an “impact” fee to fund affordable housing. The enactment of such a fee would increase the cost of market rate housing to the future resident. The theory behind this approach presupposes that for every new, highly paid professional, more demand is created for workers in the service industry who will also need housing.

Speaking of “impact”, we should consider the impact of affordable housing developments on our police officers. I wrote and shared data on this impact 18 months ago.

I was not supportive of the ideas mentioned above at first glance, so I asked if some alternative options could be considered. One course of action would be to follow the example of Santa Clara and Mountain View, and waive adherence to prevailing wage ordinances on affordable housing construction. Doing so would lower the cost of construction, which in turn would mean that San Jose no longer has to subsidize these projects by continuing to waive infrastructure fees for road paving and parks. To date, the city of San Jose has waived more than $100 million of infrastructure fees to promote affordable housing.

Another idea I suggested concerns the distinction of affordable housing that is built by for-profit entities versus non-profit entities. Non-profits build the majority of the affordable housing in San Jose and are exempt from paying property tax. For-profit construction results in property tax revenues being paid to San Jose and other government entities, such as schools, that need the revenue to pay teachers. Property tax revenues are the largest annuity stream payable for ongoing city services in San Jose, and each and every time the council approves another affordable housing development exempt from property tax, we move one step closer to laying off another police officer or teacher. I have written before about the consequences of this lost revenue.

At the end of the day, I believe in quality over quantity when it comes to affordable housing. Everyone—not just some—should pay property taxes and contribute to the costs of road paving and the creation of new parks. This provides a good example of equity and paying as we go for infrastructure and ongoing city services.


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